Nation’s Largest Student Loan Servicer is in Deep Water

On January 18, 2017 the Consumer Financial Protection Bureau (“CFPB”) filed a complaint in the Middle District of Pennsylvania against Navient, the nation’s largest student loan servicer. Navient, formerly known as Sallie Mae, Inc., services loans for over 12 million borrowers, including over 6 million customer accounts pursuant to a contract with the United States Department of Education, and more than $300 billion in federal and private student loans.

Below are six different areas which the CFPB has alleged Navient violated various consumer protection statutes, including, but not limited to, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

Misrepresenting Information to the Credit Bureaus About Disabled Borrowers

Borrowers that become totally and permanently disabled are eligible to have their student loans discharged. When this occurs lenders are required to advise the credit bureaus with a specific code about the borrower. It is alleged that Navient regularly failed to appropriately provide the credit bureaus with this information, and instead, provided information indicating that the borrower had defaulted. This had a serious detrimental impact on these borrower’s credit reports, making it more difficult and expensive to procure credit. Even more troubling is that many disabled veterans were victimized by this.

Mishandling of Payments

When borrowers submitted lump-sum payments with instructions to pay off a specific loan, Navient sometimes would divide the payment and submit it to all of the loans on the borrower’s account. Additionally, instructions provided by co-signers about the allocation of payments were often times ignored because it is alleged that Navient’s mail equipment did not detect any handwritten notes. Navient failed to update its technology and systems to prevent these errors from occurring. As such, the errors happened over and over again harming borrowers time and time again.

Steering Borrowers Away From Income-Based Repayment Plans

Many student loan borrowers are eligible for income-based repayment plans, however, it can often times be difficult for borrowers to navigate the complexities of the various plans and bureaucratic red tape. It has been alleged that Navient “systematically deterred” its customers from enrolling in these plans because it took too much time to counsel and advise the borrowers, and instead pushed borrowers into different options.

Many borrowers were pushed towards the forbearance option, which allows borrowers to cease making payments for up to 12 months, however, the interest on the loan continues to accrue. Many borrowers were pushed towards the forbearance option, however, this was not the best option available to them. It is alleged that Navient enrolled at least 1.5 million borrowers in two or more forbearances totaling 12 months or longer, and 520,000 were enrolled in at least four forbearances. Pushing these borrowers into the forbearance options is said to have resulted in an additional $4 billion in interest.

For the borrowers that were able to enroll in income-based repayment plans, it is alleged that Navient consistently failed to advise the borrowers that they must provide paperwork every 12 months to renew their application. If a borrower fails to timely submit the new paperwork then they are dropped from the plan. As a result of Navient’s failure to advise borrowers of the requirement to submit new paperwork, approximately 60 percent of Navient’s customers did not renew on time from July 2011 through March 2015. Furthermore, Navient provided vague notices to borrowers regarding this requirement, such as “New Document Ready for Review” and “Your Sallie Mae Information.”

Misrepresenting How to Release a Co-Signer

Private student loans usually require borrowers to obtain a co-signer. A co-signer is a person that agreed to become liable under the loan. Many loans permit borrower to release their co-signers after a certain number of payments have been made. It is alleged that Navient created obstacles and made it “deceptively difficult” to obtain the releases. Navient also misapplied payments, if a borrower submits payment one month for two or three payments in advance, then they do not have to make payments for these months. To release a co-signor it usually requires 12 consecutive payments. When borrowers made larger than a one month payment and skipped the next months payments Navient would treat this as a failure to make consecutive payments which resulted in the borrower’s consecutive month payment count down to zero.

Misrepresentation Regarding Loan Rehabilitation

Navient’s debt collection arm, Pioneer Credit Recovery, “systematically mislead” borrowers about the advantages of loan rehabilitation. Loan rehabilitation is a process that borrowers that default on their federal loans can get out of default. Navient consistently failed to advise borrowers about the positive effects loan rehabilitation has on borrower’s credit reports.

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